Domestic Manufacturing Deduction: Does Conformity Increase Employment Growth?

• In Event: Taxation and firm performance
  In Paper Session: Taxation and Firm Performance

Abstract

Using an ordinary least squares regression with panel data on 43 U.S. states from 2005 to 2011, we examine the association between states’ adoption of the domestic manufacturing deduction (DMD) and total (manufacturing) employment growth. We also investigate whether the state tax policy structure moderates the association between the DMD and employment growth. States can structure their income tax to automatically incorporate federal tax provisions (rolling conformity) or incorporate as of a specified date (fixed conformity). We find states that have adopted the DMD have higher manufacturing employment growth but not higher total employment growth. This impact is driven entirely by state-years that follow rolling conformity. Our results suggest that the DMD is only an important determinant of manufacturing employment growth in states that have rolling conformity. The results highlight certainty in tax policy as an important factor that impacts the efficacy of tax preferences designed to boost economic outcomes.

Authors

• Ann Boyd Davis, Tennessee Tech University

• Rebekah McCarty Moore, Northeastern University